In a March 18 research note, analyst John Freeman reported that after Raymond James revised its estimates on Chesapeake Energy Corp. (CHK:NYSE), it reiterated its Outperform rating and increased its target price on the company to $4.50 per share from $4. Chesapeake's stock is currently trading at around $3.24 per share.
Freeman noted that Raymond James updated its model of the energy firm to reflect newly available data, all of which he covered.
Regarding Q4/18 earnings, they were as expected, the analyst wrote. Pricing and costs were mixed, leading to an EBITDA (earnings before interest, taxes, depreciation and amortization) that was in line with Raymond James' forecast and above the Street's. Earnings per share fell in between both entities' projections.
Guidance for 2019, announced with Q4/18 earnings, included production of 475,000–505,000 barrels of oil equivalent per day (475–505 Mboe/d) versus Raymond James' new estimate of 485 Mboe/d. Management anticipates oil volumes of 116–122 Mboe/d and reaching an oil mix of 25% by Q4/19, whereas Raymond James forecasts 118 Mboe/d and just under a 25% oil mix.
Chesapeake guided to 2019 capital spending of about $2.4 billion, which is similar to that of 2018. Raymond James forecasts a bit less spending at $2.3 billion.
With the new data in hand, Raymond James lowered its 2019 forecast and scaled back rig count in 2020 to 19 from 22, "resulting in a cash flow neutral drilling program under NYMEX strip pricing," Freeman pointed out. In 2020, however, Chesapeake could become cash flow neutral in 2020, "a very positive step as the firm looks to continue paring down debt."
Freeman touched on Chesapeake's operations, indicating that "the integration of WildHorse Resource Development's assets looks to be progressing well, with significant cost savings already being realized." Chesapeake will operate five rigs in the Permian Basin, concentrating primarily on the Turner Formation.
He highlighted that the company "placed online its highest producer yet in the Permian Basin, delivering an IP24 of 2,387 boe/d (78% oil) (note that we model an IP30 of 1,344 boe/d [52% oil])."
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Disclosures from Raymond James, Chesapeake Energy Corp., March 18, 2019
ANALYST INFORMATION
Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analyst John Freeman, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.
Raymond James & Associates, Inc. makes a market in the shares of Chesapeake Energy Corporation.
